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National Law Journal

September 11, 2014

Large Punitives Award Against Bank in Loan Foreclosure

Amanda Bronstad

A jury has awarded nearly $39 million, mostly in punitive damages, to a Cambodian immigrant couple who sued East West Bank for forcing the foreclosure of their commercial loan.

F&F LLC, a business owned by Choung Fann Yik and Ying Faung Ley, sued East West Bank, which had approved a $34.8 million loan for construction of a shopping center in Rancho Cucamonga, Calif. After the Pasadena, Calif., bank sold their loan for $22 million, the new investor foreclosed on the couple.

On Monday, a jury in Los Angeles found East West 70 percent liable for the couple’s losses and awarded $16.9 million in compensatory damages plus punitive damages of $22 million—the amount East West received for the loan.

“We know as lawyers punitive damages are often sought, rarely received,” said the couple’s attorney, Justin Karczag, a partner at Foley Bezek Behle & Curtis in Costa Mesa, Calif. “It was really gratifying but also surprising to the extent that it shows they understood our case.”

An East West Bank spokeswoman did not return a call for comment, and John Hosack, a shareholder at Los Angeles-based Buchalter Nemer who represented the bank, did not respond to a request for comment.

East West’s parent corporation, East West Bancorp Inc., disclosed the verdict in a filing Tuesday with the U.S. Securities and Exchange Commission. “The jury’s verdict is subject to further legal proceedings and an appeal will be considered,” the company wrote.

East West added that the final payment would be reduced by $5 million due to a previous ruling in a related case. Although East West didn’t name the case, court records filed by the bank indicate F&F in 2011 obtained a $9.7 million judgment in a malpractice case against its former attorneys at Atkinson, Andelson, Loya, Ruud & Romo in Cerritos, Calif.

In 2007, F&F took out the original loan for what was supposed to be a “legacy project” for the family, said another attorney for the couple, Robert Curtis, a partner at Foley Bezek, who works in Santa Barbara, Calif.

“It was going to be a large minimall with a gas station, convenience store, food court and a Four Points by Sheraton hotel,” he said. “They set out by buying the land … getting the project designed and then seeking out a lender to give them a construction loan.”

But problems surfaced with the project’s general contractor, involving hundreds of overruns and change orders. When the loan came due two years later, East West demanded that the couple pay the costs out of pocket despite earlier promises that it would extend the loan, according to the couple’s attorneys.

F&F, which invested $13.9 million of its own money into the failed project, sued for at least $15 million in out-of-pocket expenses, lost profits and the depreciated value of the land.

East West Bank, in court records, blamed the couple’s problems on a “dysfunctional team of construction professionals” and the 2008 economic recession.

The jury sided with F&F on claims of breach of contract, breach of fiduciary duty, false promises, concealment, intentional misrepresentation and negligence.

“It was very clear they felt the bank’s conduct was despicable,” Curtis said.